The 1995 Products Liability Act of North Carolina: An Ill-Conceived Statutory Scheme

Douglas B. Abrams

February 16, 1996

I. INTRODUCTION

North Carolina has continued to distinguish itself as a State with the least amount of protection for its citizens from unsafe products. The latest amendments to the North Carolina Products Liability Act demonstrate how little the North Carolina Legislature, as an institution, values the safety rights of North Carolina Citizens. The impetus for alteration in North Carolina Products Liability Act rested in multinational corporations whose lobbyists submitted a bill containing segments cut and pasted from bills throughout the Country. Many times this original bill referred to claims that were not even recognized in North Carolina.

Even the North Carolina business lobbyists conceded they could not name a single example of an improper products liability award in North Carolina for a consumer. To quote one business lobbyist, whom for discretion's sake I will not name, A North Carolina's Products Liability Laws really are pretty pathetic, aren't they.@ The sponsors of this bill had no firm understanding of the technicalities of North Carolina's law nor of the consequences of many of the sections they proposed. During the process of debate on the bill, it was virtually impossible to find legislators supporting the bill who could explain what problem existed which they wanted to fix. It was as if Alexander Hamilton had crafted a nightmare scenario depicting the worst aspects of a legislative witch hunt.

Amazingly, out of this climate of a desire to legislate to fix non-existent problems, the final bill which emerged will not substantially change existing law. Indeed, sponsors of this bill repeatedly asserted publicly that they sought only to Acodify existing North Carolina law on products liability.@ Some changes which were made to the bill actually increase the safety rights of North Carolina citizens, when the sections are properly understood.

II. A SECTION BY SECTION ANALYSIS OF CHANGES CONTAINED IN THE NORTH CAROLINA PRODUCTS LIABILITY ACT OF 1995

A. SECTION 99B-1 DEFINITIONS

Section 99B-1(1) contains a minor change as follows:

When used in this Chapter, unless the context otherwise requires:

(1) 'Claimant' means a person or other entity asserting a claim and, if said claim is asserted on behalf of an estate, an incompetent or a minor, 'claimant' includes plaintiff's decedent, guardian, or guardian ad litem.

Subsection 99B-1(3) now reads:

(3) 'Product liability action' includes any action brought for or on account of personal injury, death or property damage caused by or resulting from the manufacture, construction, design, formulation, development of standards, preparation, processing, assembly, testing, listing, certifying, warning, instructing, marketing, selling, advertising, packaging, or labeling of any product.

B. SECTION 99B-1.1: STRICT LIABILITY

This newly enacted section reads:

' 99B-1.1. Strict liability.

There shall be no strict liability in tort in product liability actions.

The proponents of the Products Liability Act of 1995 added this section as an afterthought. North Carolina remains one of about three or four states which cling to anachronistic views of protecting international and multi-state corporations for the havoc caused by their defective products. The is no logic in this argument. In fact, the absence of strict liability merely penalizes North Carolina companies when their workers= are injured by defective products. North Carolina businesses purchase far for products than they manufacture. Thus for these businesses, the absence of strict liability penalizes their workers and increases the cost of doing business within the boundaries of North Carolina. Furthermore, even North Carolina businesses which do manufacture products suffer economically from the absence of strict liability. These manufacturers sell interstate. When a consumer is hurt in another State which recognizes strict liability, the North Carolina manufacturer is judged based on the elements of strict liability. North Carolina businesses, then, are held liable in other states for strict liability, but within the state bear the increased workers= compensation expenses for claims which cannot be pursued due to the absence of strict liability as a claim for relief. However, the proponents of this bill were never seriously concerned with the best interests of North Carolina consumers of North Carolina businesses. Eventually, the North Carolina courts or the Legislature will adopt strict liability as the law of this State. The proponents of the Act merely hoped to delay this adoption by adding this language to the Act.

C. SECTION 99B-1.2: BREACH OF WARRANTY

This newly added section provides as follows:

' 99B-1.2. Breach of warranty.

Nothing in this act shall preclude a product liability action that otherwise exists against a manufacturer or seller for breach of warranty. The defenses provided for in this Chapter shall apply to claims for breach of warranty unless expressly excluded under this Chapter.

This section was added to expressly protect a consumer's right to assert breach of warranty claims under the law. Initial drafts of the Products Liability Bill of 1995 did not include this section. Of course, North Carolina would have become perhaps the only state to repeal the U.C.C. if the language of the 1995 Products Liability Bill had been read to defeat breach of warranty claims. The proponents of the bill asserted that they never intended such a result. This section, therefore, is an important section in demonstrating that the Products Liability Bill of 1995 relates to negligence claims and not breach of warranty claims.

D. SECTION 99B-2: SEALED CONTAINER DEFENSE/PRIVITY IN BREACH OF WARRANTY CLAIMS

This section reads:

' 99B-2.Liability of seller and manufacturer. Seller's Opportunity to Inspect; privity requirements for warranty claims.

(a) No product liability action, except an action for breach of express warranty, shall be commenced or maintained against any seller when the product was acquired and sold by the seller in a sealed container or when the product was acquired and sold by the seller under circumstances in which the seller was afforded no reasonable opportunity to inspect the product in such a manner that would have or should have, in the exercise of reasonable care, revealed the existence of the condition complained of, unless the seller damaged or mishandled the product while in his possession; provided, that the provisions of this section shall not apply if the manufacturer of the product is not subject to the jurisdiction of the courts of this State or if such manufacturer has been judicially declared insolvent.

(b) A claimant who is a buyer, as defined in the Uniform Commercial Code, of the product involved, or who is a member or a guest of a member of the family of the buyer, a guest of the buyer, or an employee of the buyer may bring a product liability action directly against the manufacturer of the product involved for breach of implied warranty; and the lack of privity of contract shall not be grounds for the dismissal of such action.

This section, which merely underwent a change of headings, further demonstrates that breach of warranty claims continue to exist in North Carolina without being affected in any fashion by the Products Liability Act of 1995. North Carolina Courts; however, should once and for all end any defense of privity in breach of warranty claims. The exceptions to the rule are so numerous that the remaining classes of persons who face claims of privity as a defense are persons such as donees and bystanders. The fact that privity exists at all as a defense is absurd.

E. SECTION 99B-3: ALTERATION OR MODIFICATION OF THE PRODUCT

This section reads:

' 99B-3. Alteration or modification of product.

(a) No manufacturer or seller of a product shall be held liable in any product liability action where a proximate cause of the personal injury, death, or damage to property was either an alteration or modification of the product by a party other than the manufacturer or seller, which alteration or modification occurred after the product left the control of such manufacturer or such seller unless:

(1) The alteration or modification was in accordance with the instructions or specifications of such manufacturer or such seller; or

(2) The alteration or modification was made with the express consent of such manufacturer or such seller.

(b) For the purposes of this section, alteration or modification includes changes in the design, formula, function, or use of the product from that originally designed, tested, or intended by the manufacturer. It includes failure to observe routine care and maintenance, but does not include ordinary wear and tear.

F. SECTION 99B-4: USE OF THE PRODUCT

This section reads:

' 99B-4. Injured parties' Knowledge or reasonable care.

No manufacturer or seller shall be held liable in any product liability action if:

(1) The use of the product giving rise to the product liability action was contrary to any express and adequate instructions or warnings delivered with, appearing on, or attached to the product or on its original container or wrapping, if the user knew or with the exercise of reasonable and diligent care should have known of such instructions or warnings; or provided, that in the case of prescription drugs or devices the adequacy of the warning by the manufacturer shall be determined by the prescribing information made available by the manufacturer to the health care practitioner;

(2) The user knew of or discovered a defect or unreasonably dangerous condition of the product and was aware of the danger, that was inconsistent with the safe use of the product, and then unreasonably and voluntarily exposed himself or herself to the danger, and was injured by or caused injury with that product; and nevertheless proceeded unreasonably to make use of the product and was injured by or caused injury with that product; or

(3) The claimant failed to exercise reasonable care under the circumstances in his the use of the product, and such failure was a proximate cause of the occurrence that caused the injury or damage to the claimant complained of.

This section requires close attention. Some of the changes to the statute are merely technical in nature. Other changes may impact certain product liability claims. For example, under subsection 99B-4(1) claims related to prescription drugs are moved to subsection 99B-5(c). That change is unlikely to affect North Carolina cases.

Under subsection 99B-4(2) the language of this section has changed somewhat from prior law; however, the impact of these changes is likely to have little effect on North Carolina law. Under prior law, the awareness of a dangerous condition and then unreasonable use by a claimant barred recovery. Under the present statute, this misuse must be unreasonable and voluntary. Additionally, the person must subject himself or herself to that danger. Thus, this misuse requires negligence and proximate cause of injury by the user in order to establish the defense. This defense is somewhat akin to a claim of assumption of risk.

99B-4(3) creates only a limited form of contributory negligence, in that the alleged negligence of the claimant must be in the use of the defective product. Under 99B-4(3) in order to establish contributory negligence, the defendant must establish that: (1) the claimant; (2) failed to exercise reasonable care under the circumstances; (3) in the use of the product; (4) and such failure to use reasonable care in the use of the product; (5) was a proximate cause of the injury or damage complained of. The scope of Section 99B-4(3) is presently under appellate review. When this same issue was considered in another jurisdiction, the Court properly analyzed the express language of a similar section to preclude contributory negligence as a defense for contributory negligence other than negligence in the use of the product complained of. See Sexton By and Through Sexton v. Bell Helmets, Inc., 926 F.2d 331 (4th Cir. 1991). In Sexton, the Fourth Circuit was called upon to interpret a Kentucky statute which contained a contributory negligence provision substantively identical to North Carolina Statute 99B-4(3), and reasoned that:

This provision provides a specific form of contributory negligence which defines and limits the types of conduct which bars a claimant in a products liability claim. Chapter 99B was originated from a Model Act propounded in a number of States. One such State was Kentucky. Under the Kentucky version of the Model Product Liability Act, a claimant cannot recover "[i]f the plaintiff failed to exercise ordinary care ... in his use of the product" and if that negligence was "a substantial cause of the occurrence that caused injury or damage" then the defendant shall not be liable. Ky. Rev. Stat. ' 411.320(3)(emphasis added). The statute defines contributory negligence as the failure to exercise ordinary care in the use of the product in question.

Sexton, 926 F.2d 331. In Sexton, the plaintiff was wearing his Bell safety helmet while

operating an unlighted, unlicensed, unregistered, uninspected motorcycle, designed solely for off road use, on a public highway at or near sunset. At the time of the accident Sexton was travelling near the center of the road on which Jackie Boggs was coming towards him from the opposite direction. When asked why he failed to see Jackie Boggs before the accident, Sexton replied that he "must have been looking off.

Sexton, 926 F.2d at 338-39. The Sexton Court then rejected the Defendants= contention that common law contributory negligence would serve as a bar and held that while

the negligence of Sexton arguably may have been a contributing cause of the accident, no evidence has been advanced to show that he negligently used the helmet or that the negligent use of the helmet was a cause of his injuries. Yet both are specific requirements of the statute.

Sexton, 926 F.2d at 338-39.

G. SECTION 99B-5: INADEQUATE WARNINGS AND INSTRUCTIONS

This newly enacted section provides:

' 99B-5. Claims based on inadequate warning or instruction.

(a) No manufacturer or seller of a product shall be held liable in any product liability action for a claim based upon inadequate warning or instruction unless the claimant proves that the manufacturer or seller acted unreasonably in failing to provide such warning or instruction, that the failure to provide adequate warning or instruction was a proximate cause of the harm for which damages are sought, and also proves one of the following:

(1) At the time the product left the control of the manufacturer or seller, the product, without an adequate warning or instruction, created an unreasonably dangerous condition that the manufacturer knew, or in the exercise of ordinary care should have known, posed a substantial risk of harm to a reasonably foreseeable claimant.

(2) After the product left the control of the manufacturer or seller, the manufacturer or seller became aware of or in the exercise of ordinary care should have known that the product posed a substantial risk of harm to a reasonably foreseeable user or consumer and failed to take reasonable steps to give adequate warning or instruction or to take other reasonable action under the circumstances.

(b) Notwithstanding subsection (a) of this section, no manufacturer or seller of a product shall be held liable in any product liability action for failing to warn about an open and obvious risk or a risk that is a matter of common knowledge.

(c) Notwithstanding subsection (a) of this section, no manufacturer or seller of a prescription drug shall be held liable in a products liability action for failing to provide a warning or instruction directly to a consumer if an adequate warning or instruction has been provided to the physician or other legally authorized person who prescribes or dispenses that prescription drug for the claimant unless the United States Food and Drug Administration requires such direct consumer warning or instruction to accompany the product.

Although this section is new to the statutes of North Carolina, it does not appear to alter the present law in North Carolina, and for the first time codifies the duty to warn. See, e.g., Driver v. Burlington Aviation, Inc., 110 N.C.App. 519, 430 S.E.2d 476 (1993) (products liability action under Chapter 99B implicitly includes actions caused by or resulting from warnings and instructions); Lee v. Crest Chem. Co, 583 F.Supp. 131 (M.D.N.C. 1984)(manufacturer's duty to warn of dangers it knows can be encountered during foreseeable use of its product).

The elements of proof in a products liability case involving the failure to provide adequate warnings or instructions have remained essentially unchanged. Subsection (a) requires the Plaintiff to prove the element of proximate cause. The Plaintiff also has to prove that the manufacturer or seller unreasonably failed to provide an adequate warning or instruction. Significantly, this statute expressly holds a manufacturer or seller liable for pre-sale failure to warn and post-sale failure to warn. As such, it codifies the holding of the North Carolina Court of Appeals in Smith v. Selco Products, Inc. See Smith v. Selco Products., Inc., 96 N.C.App. 151, 385 S.E.2d 173 (1989)(manufacturer has a continuing duty to provide post-sale warnings when it learns of any dangerous deficiencies in the use of the product), cert. denied, 326 N.C. 598, 393 S.E.2d 883 (1990). Moreover, subsection (a)(2) holds a manufacturer or seller legally responsible for failing to conduct recalls or take other reasonable steps.

In subsection (b), North Carolina has retained its law that a manufacturer or seller does not have to warn or instruct against open and obvious hazards. Importantly, section 99B-6 does not adopt any language precluding a manufacturer or seller from being responsible for open and obvious hazards based upon improper design, as contrasted with failure to warn. Subsection (b) also states that a manufacturer or seller of a product does not have to warn consumers about a risk that is "common knowledge."

Subsection 99B-5(c) adopts a provision that allows the manufacturer or seller of prescription drugs to avoid liability to a consumer for failure to provide a warning or instruction directly to the consumer as long as the manufacturer or seller has provided adequate instructions and warnings directly to a physician or pharmacists, unless the FDA requires direct warnings to consumers. This provision is equivalent to the law as codified in the previous versions of 99B-4(1) except now when the FDA requires direct warnings to consumers, even if the warnings or instructions given to the prescriber were adequate.

H. SUBSECTION 99B-6: DEFECTIVE DESIGN CASES

This section is also newly enacted:

' 99B-6. Claims based on inadequate design or formulation.

(a) No manufacturer of a product shall be held liable in any product liability action for the inadequate design or formulation of the product unless the claimant proves that at the time of its manufacture the manufacturer acted unreasonably in designing or formulating the product, that this conduct was a proximate cause of the harm for which damages are sought, and also proves one of the following:

(1) At the time the product left the control of the manufacturer, the manufacturer unreasonably failed to adopt a safer, practical, feasible, and otherwise reasonable alternative design or formulation that could then have been reasonably adopted and that would have prevented or substantially reduced the risk of harm without substantially impairing the usefulness, practicality, or desirability of the product.

(2) At the time the product left the control of the manufacturer, the design or formulation of the product was so unreasonable that a reasonable person, aware of the relevant facts, would not use or consume a product of this design.

(b) In determining whether the manufacturer acted unreasonably under subsection (a) of this section, the factors to be considered shall include, but are not limited to, the following:

(1) The nature and magnitude of the risks of harm associated with the design or formulation in light of the intended and reasonably foreseeable uses, modifications, or alterations of the product.

(2) The likely awareness of product users, whether based on warnings, general knowledge, or otherwise, of those risks of harm.

(3) The extent to which the design or formulation conformed to any applicable government standard that was in effect when the product left the control of its manufacturer.

(4) The extent to which the labeling for a prescription or nonprescription drug approved by the United States Food and Drug Administration conformed to any applicable government or private standard that was in effect when the product left the control of its manufacturer.

(5) The utility of the product, including the performance, safety, and other advantages associated with that design or formulation.

(6) The technical, economic, and practical feasibility of using an alternative design or formulation at the time of manufacture.

(7) The nature and magnitude of any foreseeable risks associated with the alternative design or formulation.

(c) No manufacturer of a product shall be held liable in any product liability action for a claim under this section to the extent that it is based upon an inherent characteristic of the product that cannot be eliminated without substantially compromising the product's usefulness or desirability and that is recognized by the ordinary person with the ordinary knowledge common to the community.

(d) No manufacturer of a prescription drug shall be liable in a products liability action on account of some aspect of the prescription drug that is unavoidably unsafe, if an adequate warning and instruction has been provided pursuant to G.S. 99B-5(c). As used in this subsection, "unavoidably unsafe" means that, in the state of technical, scientific, and medical knowledge generally prevailing at the time the product left the control of its manufacturer, an aspect of that product that caused the claimant's harm was not reasonably capable of being made safe.

(e) Nothing in this section precludes an action against a manufacturer in accordance with the provisions of G.S. 99B-5.

This section has adopted a form of risk/hazard analysis. At the most basic level, the jury will be given evidence and then will weigh whether the manufacturer or seller failed to adopt reasonable alternatives. This approach has been recognized by safety engineers for over fifty years. The manufacturer must determine all risks associated with the product, and analyze all mechanisms by which a consumer could sustain serious injury or death. If there is a technologically feasible and economically feasible alternative, the manufacturer must adopt those safer alternatives. It is implicit in this statute that a manufacturer who fails to conduct this statutory hazards analysis would be deemed negligent.

When hiring an expert, and preparing an expert for deposition and trial, encourage the expert to tailor his or her testimony to explain each of the factors in subsections (b)(1) - (7) and how the manufacturer violated the particular provisions or wholly failed to even conduct such an analysis. The inquiry in a products case both before this subsection and now expressly after this subsection has been enacted relates to how the dangers associated with the product as designed far outweigh its utility, or that the manufacturer never considered technologically and practically feasible alternate designs. During the trial of the case, the parties would proceed as has occurred in almost every products liability case based upon inadequate design. The Plaintiff presents evidence of a hazards analysis, and that reasonable and feasible alternatives were available. This language should be incorporated into the jury instructions. The proponents of this bill were attempting to craft a statute which was unfairly tilted toward the manufacturers of dangerous products; however, to a large degree the Act now provides an explicit framework for a jury to hold the manufacturers of dangerous products accountable for the injuries caused by these dangerous products.

Importantly this subsection focuses upon the time of manufacture of the product and not the time the product was first designed. This subsection logically recognizes that after the product has been initially designed, and after the manufacturer conducts a hazards analysis of the product, if the product then causes injury, the manufacturer has a continuing duty to evaluate the design of the product. This section expressly imposes upon the manufacturer a duty to go back to the drawing board and make technologically and practically feasible design changes when it continues to manufacture a product after notice of injury.

On a related subject this section continues existing law that mere compliance with a minimum standard does not provide blanket immunity. Compliance with an applicable government standard is only one factor to consider in determining whether the product is defective. For example, clothing manufactured of fabrics that meet the standards of the Flammable Fabrics Act may still be unreasonably dangerous.

I. SECTION 99B-10: DONATED FOOD

This section provides:

'99B-10 Immunity for donated food.

(a) Notwithstanding the provisions of Article 12 of Chapter 106 of the General Statutes, or any other provision of law, any person, including but not limited to a seller, farmer, processor, distributor, wholesaler, or retailer of food, who donates an item of food for use or distribution by a nonprofit organization or nonprofit corporation shall not be liable for civil damages or criminal penalties resulting from the nature, age, condition, or packaging of the donated food, unless an injury is caused by the gross negligence, recklessness, or intentional misconduct of the donor.

(b) Notwithstanding any other provision of law, any nonprofit organization or nonprofit corporation that uses or distributes food that has been donated to it for such use or distribution shall not be liable for civil damages or criminal penalties resulting from the nature, age, condition, or packaging of the donated food, unless an injury is caused by the gross negligence, recklessness, or intentional misconduct of the organization or corporation.

This section makes no change in the previous law and is likely to have little impact on products liability law in North Carolina.

J. SECTION 99B-11: DEFECTIVELY DESIGNED FIREARMS

This section provides:

' 99B-11.Products liability lawsuits involving firearms

Claims based on defective design of firearms

(a) In a products liability action involving firearms or ammunition, whether a firearm or ammunition shell is defective in design shall not be based on a comparison or weighing of the benefits of the product against the risk of injury, damage, or death posed by its potential to cause that injury, damage, or death when discharged.

(b) In a products liability action brought against a firearm or ammunition manufacturer, importer, distributor, or retailer that alleges a design defect, the burden is on the plaintiff to prove, in addition to any other elements required to be proved:

(1) That the actual design of the firearm or ammunition was defective, causing it not to function in a manner reasonably expected by an ordinary consumer of firearms or ammunition; and

(2) That any defective design was the proximate cause of the injury, damage or death.

K. MISCELLANEOUS PROVISIONS

The amendments to Chapter 99B discussed below apply to causes of action arising on or after January 1, 1996. Note that there is also a specific exception for injury or death from silicone gel breast implants. The amendments do not apply to silicone breast implant products actions in which the device was implanted prior to January 1, 1996.

III. CONCLUSION

This paper has not detailed the many different drafts of the 1995 Products Liability Bill. Almost all of the earlier drafts are available at the NCATL or by contacting the authors of this paper. The proponents of the 1995 Products Liability Act first proposed a bill which was an outrageous intrusion upon the safety rights of North Carolina Consumers and Workers. The end result, however, predominately codifies existing law. With respect to design changes, this section imposes a hybrid form of liability. Once a Plaintiff proves that under a hazard analysis the product is defective, the Plaintiff has established the liability of the Defendant. Furthermore, this Act imposes only a very limited form of contributory negligence. That issue is presently pending before the North Carolina Court of Appeals. North Carolina continues to be a state which provides less protection to its consumers and workers than any other state. The question in North Carolina continues to be whether North Carolina will reach the twentieth century in its protection of safety rights before the twenty- first century arrives.